Credit Reports 101

Where Credit Reports Come from and What They Include

Credit Reports 101
January 19, 2016

A credit report contains information that identifies you personally based on a Social Security number, date of birth, past and present addresses, your financial payment information regarding any debts you have incurred and your payment history. The payment history section of a credit report will include such factors as the types and amount of credit you use, how long your credit accounts or your debts have been open, and your level of payments made on time or late. Having a positive credit report without late payments, bankruptcies, and a high credit score makes getting loans easier and often at lower interest rates. The better a credit score, the more likely a person will be approved for almost any financial transaction they apply for, including apartment rentals, cell phone contract, auto loans, and even insurance.

Who Creates Credit Reports?

There are three primary credit-reporting companies: Equifax, Experian, and TransUnion. They are able to track credit across the United States and provide reports to companies that engage in loans to consumers and businesses. These credit-reporting companies are required by the Federal Trade Commission to provide free credit reports to anybody that asks for them. You can check your credit score and read your credit report for free within minutes using MoneyTips Credit Manager.

Credit reports will often contain a credit score sometimes referred to as a FICO score, developed by Fair Isaac Corporation. FICO scores can start as low as 300 and go as high as 850 for somebody with perfect credit. Equifax uses a measure they call the BEACON score, but it functions similarly to the FICO score.

Each lender has their own criteria for determining what level of credit score or FICO score is acceptable for particular loans. Any time a person applies for credit, the credit agencies may also report this on the credit report, and the application itself could negatively affect that person's FICO score.

Understanding a credit report requires finding the single number for the FICO score, the details for credit applied for, the amount of credit a person currently has, the payment regularity for the debts, as well as if a person has been arrested or declared bankruptcy in the past. All of these factors and potentially others will appear on the credit report and can affect the overall FICO score.

Credit Report Errors

According to a CBS News report on 60 Minutes in February 2013, there were over 40 million mistakes in credit reports. This means that anybody applying for a mortgage, a student loan, a car loan, or even for jobs would be wise to check their credit report to make sure there are no significant errors.

The key steps for using a credit report include obtaining a free credit report first, then carefully evaluating all of the records contained on the credit report regarding addresses, credit lines open, payment history, and criminal records, if listed. If a consumer finds any inaccuracy in a credit report, he or she may challenge that item by directly contacting the credit-reporting agency. While this process takes some time, once the inaccurate information has been corrected it may result in an improvement of the consumer’s credit score. The Federal Trade Commission provides guidelines for correcting a report here:

What Goes On A Credit Report?

Delinquencies in payments can remain on a report for seven years. Bankruptcies can be found on reports for 10 years and unpaid taxes for 15 years. Inquiries only stay on report for approximately 2 years.

Understanding and using a credit report to your advantage can be an important step in developing a high credit score. A high credit score will generally lead to lower debt expenses and higher acceptance rates for any form of credit.

If you would like to monitor your credit to prevent identity theft and see your credit reports and scores, check out our credit monitoring service.

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